Corporate Governance and
Employees in Germany:
Changing Linkages,
Complementarities and Tensions
Gregory Jackson (RIETI)
Marti Höpner (Visiting Fellow, Harvard)
Antje Kurdelbusch (Max Planck Institute)
The Issue
• What relation exists between the role of
investors and employees in corporate
governance? How do changes in ownership
and control impact human resource
management?
The German Case
• „Varieties of Capitalism“ approach posits
complementarities between patient capital
and cooperative, high skill labor
(Soskice/Hall)
• „Law and Economics“ literature sees
employee rights as hindering the emergence
of dispersed ownership (Roe)
The Paper
• Sociological analysis of governance
coalitions and institutional linkages between
investors and employees
• Empirical focus on changes in largest 100
German companies since the late 1990s
Germany in Comparative Context
• Patient Capital
• Long-Term
Employment
• Consensual
Management
• Contrasts with more
„marketized“ relationships
in US-UK
• Contrasts with Japan
include corporatist
associations, horizontal
organization based on
social class and
occupation, coercive role
of law
Investors
• Ownership
– Concentrated ownership
– Investors with strategic organizational interests
– Contingent monitoring by banks and holding
companies
• Finance
– Internal finance, external finance dominated by
banks
Employees
• Employment Relations
– „Decommodification“ of labor
– Long employment tenure, employment security
– Industry-wide collective bargaining
• Industrial Relations
– Codetermination
– Industrial unionism
• Work Organization
– high skill, functional flexibility, occupationcentered, flat span of control
Management
•
•
•
•
Functional specialization
Consensual decision making
Internal careers
Separation of management and supervisory
functions by law
• Compensation avoids high power incentives
based on stock performance
Institutional Linkages
• Specifying complementary relationships requires
theoretical models linking economic functions
across domains
• Positive-sum or negative-sum relationships
depend on issue area, and institutional definition
of interest and rights
• Inherent selectivity of models may lead us to
overestimate the „tight fit“ between institutions
• Alternative approach? Sociology of governance
coalitions
Three Axis of Conflict in CG
• Class conflict
• Insider-Outsider conflict
• Accountability conflict
Institutionalization of Stable
Governance Coaltion
• Limited class conflict
– Strategic ownership stakes
– low market captialization, stable rate of return
– protection from takeovers
• Only latent insider-outsider conflict
– protection of insiders, but effective contingent
governance by banks
• Acceptable accountability?
– lack of transparency, but strong insider
information and demands for consensus
Changes among Investors: 1990s
• Rise of institutional and foreign investors
with predominately financial interests and
pursuing greater liquidity
• Erosion of bank monitoring
• Erosion of barriers to hostile takeovers
Changes among Management:
1990s
•
•
•
•
Professionalization
Growth of external labor markets
Financial orientation
Reduction of average tenure and time
horizon
• **Rise of the shareholder-value paradigm
as new managerial ideology
Shareholder-Value Orientation of Listed
German Non-Financial Companies
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Company
Score
Bayer AG
1,61
VEBA AG
1,48
SAP AG
1,33
Hoechst AG
1,20
BASF AG
1,14
Mannesmann AG
1,11
Henkel KgaA
1,09
Daimler-Benz AG
1,02
RWE AG
0,90
Siemens AG
0,86
Schering AG
0,74
Metallgesellschaft AG 0,72
Degussa AG
0,55
Viag AG0,55
Preussag AG
0,45
MAN AG
0,36
Deutsche Lufthansa AG
Linde AG
0,22
Continental AG
0,21
Thyssen AG
0,17
0,28
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Deutsche Telekom AG 0,16
Krupp AG
0,16
Buderus AG
0,04
Agiv AG
0,00
Beiersdorf AG
-0,17
Volkswagen AG
-0,26
Rheinmetall AG
-0,31
BMW AG
-0,43
VEW AG
-0,46
Metro AG
-0,70
AVA AG
-0,81
Deutsche Babcock AG -1,08
Deutz AG
-1,18
Karstadt AG
-1,23
Bilfinger+Berger AG -1,25
Spar AG
-1,28
Südzucker AG
-1,30
Axel Springer Verlag AG
Holzmann AG
-1,90
Strabag AG
-2,29
-1,70
Interactions with Employment
• Shrinking core employment
– redistribution toward shareholders. Per capita
wages stable, but shrinking domestic
employment
• SV --> Variable pay
– linked to individual and firm performance
– incentive and cost saving elements
Interactions with
Industrial Relations
• Variable pay --> industrial relations
– less homogeneous wage structure, marketized
incomes, decentralization of bargaining
• Labor supports transparency
• Conditional support for variable pay
• Conditional support for spin-offs,
restructuring (e.g. Mannesmann, Thyssen
Krupp)
• „Co-Management“ orientation
–
–
–
–
contractualization of industrial citizenship
contribution to efficiency
externalization of costs
new tensions between works councils and
unions
Conclusions
• More marketized role of capital leading to
more marketized labor
• Employee voice does appear to have some
impact on strategies aimed at SV
• No „tight“ causal linkages between
investors and HRM as expected in the
literature. But important relationships.
Contrasts with Japan
• Similar processes in Japan
– reduction of core work forces
– marketization of incomes
• But against background of institutional
differences
– enterprise unions vs. industrial unions
– informal consultation vs. legal codetermination
rights